What Doctors and Patients Have to Lose Under ObamaCare

Changes to Medicare will give the Feds control of surgical decisions

By SCOTT GOTTLIEB

Senate Democrats are touting the American Medical Association’s endorsement of their health bill as evidence that doctors support the reforms, but there are important reasons why the American College of Surgeons and 18 other specialty groups remain opposed.

The plan’s most tangible efforts to restrain medical costs are through its controls on specialist physicians. Based on the government’s premise that specialists often make wasteful treatment decisions, the health-care legislation in Congress will subject doctors to a mix of financial penalties and regulations to constrain their use of the most costly clinical procedures. The penalties and regulations are aimed first and foremost at surgeons and the medical devices that they use, largely because that’ where the bulk of Medicare’s spending is.

It all starts with the sweeping power that the Senate bill gives to the Centers for Medicare and Medicaid Services (CMS). The agency will be given the authority to unilaterally write new rules on when medical devices and drugs can be used, and how they should be priced. In particular, the Obama healthcare team wants to give CMS the power to decide when a cheaper medical option will suffice for a given clinical problem and, in turn, when Medicare only has to pay for the least costly alternative.

The government has already sought to acquire this same power administratively. But in December the D.C. Circuit of the U.S. Court of Appeals rejected an appeal by the Obama Justice Department. In their written opinion, the judges described the arguments that the Obama lawyers made as an attempt to “end-run around the statute [Medicare].”

That court case, Hays v. Sebelius, involved a patient who said Medicare unfairly denied her a prescribed treatment for her serious lung disease. Medicare decided instead to pay for a different drug that bureaucrats argued was a suitable but cheaper alternative. While the drug issue was of interest to CMS, it was the authority on which the case turned that’s essential to the agency’s efforts at cost control. CMS wants to be able to decide for itself when the lowest cost medical treatment is clinically comparable to more expensive options. Armed with this power, CMS will apply it to areas of medicine where there are high costs but also heterogeneity in how patients are treated, such as back problems and certain heart issues.

Now the Obama healthcare team will use murky provisions embedded in the Senate bill to subtly attain in law those powers they couldn’t more artfully acquire in court. In fact, the current healthcare bill lets Medicare seek almost any restrictive payment authority it wants from a Medicare Commission established for the purposes of cost control.

If Congress believes Medicare has overreached, it has to pass a separate law to explicitly block the agency’s newly acquired powers while achieving the same cost reductions that the new authorities would have generated.  These provisions are deliberately designed to leverage Congress’s inability to act in a timely fashion.

The Senate health-care bill contains no standards for how these decisions will be made by Medicare, not even language that requires them to be based on “scientific evidence.” The legislation also exempts Medicare’s actions from judicial review, taking away the right of patients to sue the government. Unlike existing Medicare coverage laws, patients won’t have the ability to appeal any of the decisions of this new Medicare Commission.

Ironically, private health insurers must comply with new patient appeals rights under the Senate bill. The government has exempted itself from the same sort of protections.

Thus Medicare will have the power to control the medical devices that surgeons use. But clamping down on expensive procedures also means the agency will need to have authority over the specialists themselves. The organization of doctors into mostly small, disaggregated practices always made it hard for a central bureaucracy to control individual physicians and their prescribing. The Senate bill tries to fix this by creating financial arrangements that will compel doctors to consolidate their smaller practices into larger organizations, and by putting doctors on the financial hook for their treatment decisions.

Primary-care doctors who refer patients to specialists will face financial penalties under the plan. Doctors will see 5% of their Medicare pay cut when their “aggregated” use of resources is “at or above the 90th percentile of national utilization,” according to the chairman’s mark of Section 3003 of the Senate bill. While the final legislation doesn’t refer to these specific targets, in their place is an open-ended authority for Medicare to reduce physician reimbursement based on much broader measures of how much resources doctors use in caring for patients. This means the Medicare agency will have the ability to even exceed the 5% reduction targeted to the top 90^th percentile of utilizers should it choose to. In the end, the agency will likely follow the provisions outlined in the Chairman’s Mark as its gauge of Congressional intent when it comes time for CMS to write its regulations.

These provisions, buried in the final bill, read: “‘(1) IN GENERAL.—The Secretary shall establish a payment modifier that provides for differential payment to a physician or a group of physicians under the fee schedule established under subsection (b) based upon the quality of care furnished compared to cost (as determined under paragraphs (2) and (3), respectively) during a performance period. Such payment modifier shall be separate from the geographic adjustment factors established under subsection (e).”

Under the language in the final bill, “quality” is defined to include a doctors’ efficiency and her use of resources. These provisions mean doctors will feel financial pressure to limit referrals to costly specialists like surgeons, since these penalties will put the referring physician on the hook for the cost of the referral and perhaps any resulting procedures.

Next, the plan creates financial incentives for doctors to consolidate their practices. The idea here is that Medicare can more easily apply its regulations to institutions that manage large groups of doctors than it can to individual physicians. So the Senate healthcare plan imposes new costs on doctors who remain solo, mostly by increasing their overhead requirements—such as requiring three years of medical records every time a doctor orders routine medical equipment like wheelchairs.

The plan also offers doctors financial carrots if they give up their small practices and consolidate into larger medical groups, or become salaried employees of large institutions such as hospitals or “staff model” medical plans like Kaiser Permanente. One provision, laid out in Section 3022, allows doctors to share with the government any savings to the government they achieve by delivering less care—but only if physicians are part of groups caring for more than 5,000 Medicare patients and “have in place a leadership and management structure, including with regard to clinical and administrative systems.”

While these payment reforms are structured as pilot programs in the legislation, this distinction has little practical meaning. Medicare is being given broad authority, for the first time, to roll these demonstration programs out nationally without the need for a second authorization by Congress.

Regulation of medicine has always been a local endeavor, and it’s mostly the province of medical journals and professional medical societies to set clinical standards. This is for good reason. Medical practice evolves more quickly than even the underlying technologies that doctors use. This is especially true in surgery, where advances flow from experimentation by good doctors to try different surgical approaches.

The regulation of medical devices and their pricing will also have consequences for patients by discouraging innovation. Most improvements in medical devices come incrementally, with each generation of a device having small but clinically relevant advance over prior versions. This owes to the underlying hardware, which turns on high-tech materials and embedded microprocessors that themselves undergo constant upgrades.

But if Medicare starts pricing competing medical procedures off one another — reimbursing physicians and hospitals an amount equal to the cheapest alternative for approaching a given medical problem — then manufacturers will have less incentive to incorporate constant improvements into devices since their products will be priced off the cheapest option. Price and not performance will be paramount. It will be less economical to innovate. Manufactures may start holding back the small changes. Instead, they will introduce new models every four or five years that are sufficiently unique to fall outside of Medicare’s pricing scheme. Meanwhile, patients will have lost the benefit of regular improvements and constant innovation that characterize medical devices today.

The impact of these provisions won’t be confined to Medicare. Private insurance sold in the federally regulated “exchanges” will take cues from Medicare, since they’re both managed from the same bureaucracy. Medicare will set the standard for medical care across the entire marketplace.

Mr. Obama promised that under his plan people wouldn’t have to change their doctors. But it’s clear that doctors will be forced to change how they make their medical decisions.

##

Dr. Gottlieb, an internist and a resident fellow at the American Enterprise Institute, is a former senior official at the Centers for Medicare and Medicaid Services. He is partner to a firm that invests in health-care companies.  This article was adapted from a piece that originally appeared on the editorial page of the Wall Street Journal.